The trader’s guide to hash wars

If you are even remotely active on crypto-Twitter, you must be aware of the Bitcoin Cash fork drama and the consequent hash wars that are unfolding. For those late to the party, here’s a quick rundown of the situation:

Bitcoin ABC vs Bitcoin SV
The Bitcoin Cash network divided into two factions over protocol changes that have now been implemented splitting the chain into two: BCH ABC and BCH SV. Before it came to be at 16:40 UTC on Nov 15th, the two opposing camps composed of prominent names in crypto have been going at each other’s throats on Twitter for the past few weeks. Essentially, Craig Wright, who is on the side of the SV implementation threatened a 51% attack against the ABC network, should the protocol changes be implemented. With each side garnering support from miners and businesses along with ensuring they have enough hash power to sustain their network post the split, the hash wars, as this situation has been dubbed, are officially on. A more detailed version of events along with numerous updates on the fork itself can be read in Bitcoin magazine’s article here.

The scenario right now
At the time of writing this article, the ABC chain is 10 blocks ahead of SV. The ABC chain has added 253 new blocks since the new protocol was implemented, with the last common block that was mined being # 556,766. In terms of network hash power, ABC commands 5808 PH/s while SV has 4380 PH/s. Of the 2795 public nodes running the Bitcoin Cash network, 68% are compatible with the ABC client software by default, while only 19% support SV. It must be noted that Roger Ver, a big proponent of Bitcoin Cash and now the leader of the ABC camp, has directed his mining pool to lend its hash power to the ABC chain instead of mining BTC. There is also the imminent threat of a 51% attack on the ABC chain by the SV side in an attempt to win the hash war and emerge victorious instead of dying off as the minority chain. At the moment, it is more profitable to mine BTC than either ABC or SV. More insight into the mechanics as well as the economics of the ABC vs SV hash war can be gained by referring to Jiang Zhuoer’s (BTC.Top mining pool’s founder) article on medium.

Crypto exchanges are also not shying from picking sides in the fork. Okex, BitForex, Binance and Huobi have all supported the fork. Poloniex went so far ahead to provide pre-fork trading for the two competing network tokens. Exchanges suspended BCH trading along with deposits and withdrawals before the fork, informing users of details of what will follow later. Standard procedure is to wait for networks to stabilise before users can resume trading. Hours after the fork, Binance has distributed BCH SV and BCH ABC to those holding BCH on its exchange and has resumed trading. Bitfinex informed users in a tweet, “ BAB and BSV have been successfully credited to Bitfinex users and BCH positions have been claimed. The BCH symbol will not be assigned until the fork is complete.”

At the time of writing, BCH ABC is trading for an average price of $249.65 while BCH SV has the average trading price of $136.11 as per CoinMarketCap.The proof of work for both ABC and SV; ABC is ahead by 51.4%

While miners wage hash wars and markets react to each development, traders are in a curious position with respect to the entire scene.

What it means for Traders
BCH prices shot up days before the fork and in general, markets have felt the volatility of generated from news surrounding the events and what may happen after. Day traders got several opportunities to make a quick profit despite the overall bear sentiment, owing to trades opening up as the BCH price, along BTC’s kept bobbing up and down with a frequency not seen in some while. Especially in the futures market, many opportunities to trade the spread (for example difference between perpetual swap and BTC December futures went up to $400) opened and closed in a flash and those lucky to spot such trades while exchange operations stayed intact must’ve had a field day. Most traders are waiting for the post-fork transactions of BCH/ABC/SV to begin and despite the fate of the two chains still not being finalised, trading opportunities are sure to continue. In particular short-term trades in both, SV and ABC will be quite interesting, at least until the fate of BCH is sealed once and for all. Risk-appetite does play a big role here; a lot of traders are simply waiting for the hash wars to reach its conclusion before they begin trading BCH.

Preparing for the future
While things are looking up for BCH ABC, it cannot be declared outright that the hash wars are done and a winner has emerged. More dramatic incidents may follow that may end up sending the markets into a frenzy. Volatility may spell mayhem for the uninitiated but opportunities lurk amidst the chaos. The takeaway from the fork and its aftermath is quite clear: the human vector to blockchains will ensure that many coins may end up splitting in the future. Instruments that enable easy trading of the forked coins especially spread between the coins of the competing chains along with products enabling speculative trading while minimizing exposure to risk due to instability of the network immediately after a split will be crucial as the markets evolve. Moreover, instruments as these coupled with a change in approach by exchanges so that chain splits do not end up disrupting trading like they do today.

For all we know, the hash war we see going on before us may not be the only one the crypto space has to face. In the current one, both the chains are claiming to represent “Satoshi’s original vision”. Ironically, in the case of both sides, the mining pools have garnered such large shares that mining has become centralised, violating the very premise of what it means to be a decentralised network.

By Awanish Rajan & Himanshu TiwariAwanish Rajan is a former capital markets trader and an alumnus of IIT Madras. He is currently the CEO of idap.io, an upcoming cryptocurrency derivatives exchange.
Himanshu Tiwari is the blockchain analyst at idap.io and regularly writes about crypto markets and blockchain technology.